Opinion: Why the eurozone losing Poland is a bigger deal than losing Greece

Euroskeptic Law & Justice Party favored to win this weekend’s election

REUTERS/Kacper Pempel

Beata Szydlo of the Law & Justice Party, who is favored to become prime minister of Poland after this weekend’s election, campaigns at a farm near Nowe Miasto, in central Poland.

By

MatthewLynn

Grexit. Spexit. Quitaly.

Over five years of stumbling from one crisis to the next, the eurozone has developed its own bizarre lexicon of terms to describe various countries that might quit the euro
EURUSD, -0.0088%
. And yet there may be a far more important loss to the eurozone than Greece, and perhaps even Italy or Spain.

And it may be a lot closer as well. Poland.

This weekend, the biggest and most successful of the Eastern European countries is likely to install the fiercely euro-skeptic Law & Justice Party in government, replacing the far more moderate Civic Platform. Just like every EU country, except for Britain and Denmark, Poland is committed to joining the single currency eventually.

Under its new government, that is about as likely as Apple deciding the iPhone 7 should run on Android. In effect, it will be off the agenda.

That matters. A currency is not so different from a company. Its influence is either expanding or retreating. Losing Greece was always, in the end, fairly marginal to the eurozone. But losing Poland will matter far more. If the eurozone can’t persuade the rising economies of Eastern Europe to join the club, then it is hard to see that it has a long-term future.

The opinion polls don’t have a great track record recently, but the elections in Poland in Oct. 25 are likely to see Law & Justice installed in power. The latest surveys put it on around 36%, against 24% for the ruling center-right Civic Justice, with minor parties making up the rest.

The platform? It is one of the upstart, insurgent parties that are doing well right across the world. It is socially conservative, suspicious of the European Union, and hostile to immigrants. For the rest of the world, however, the greatest significance of its victory will be that Poland will be turning its back on the euro.

When the single currency was created by the Maastricht Treaty, every member of the European Union was committed to signing up one day, with the sole exceptions of Britain and Denmark, which negotiated opt-outs for themselves.

On joining the EU, the countries of Eastern Europe were all technically joining the single currency as well. It was just a matter of time. A few of the smaller ones have already done so. Slovakia, Slovenia, Latvia and Lithuania have all come on board since the currency was launched. Between them, however, those counties have a combined population of just 12 million. None of then are going to make a great deal of difference to anything.

The major countries are another matter. With a combined population of 60 million people, Poland, Hungary and the Czech Republic are of a similar size, taken together, to Britain or France. Whether they ultimately join or not can make a big impact.

Amid the crisis in the eurozone, and the booms and busts in China, the steady modernization of the Eastern Europe is easily over-looked. These economies are tortoises rather than hares, but as everyone knows, it is the tortoises that win the race eventually.

Hungary’s economy grew at a robust 3.6% last year, and is forecast to match that this year. The Czech Republic is growing by more than 3% this year, and in the first quarter chalked up growth of more than 4%. Poland will expand by another 3.2% this year — it was about the only significant economy to sail through the financial crisis without a recession.

Poland in particular is gradually establishing itself as a major power within the European economy. It is gaining on Spain. On current trends, it may soon be more important than Italy, and don’t rule out the possibility that it will eventually overtake France as well.

But it doesn’t look like it is going to join the single currency.

While the existing government was at least sympathetic to the idea, Law & Justice is setting so many barriers in place it will be impossible. President Duda insisted that if Poland were to ever join the euro there would have to be a referendum first — and as we know, whenever there is a vote the euro invariably get defeated.

He has also insisted that it can’t happen until Polish wages are at least equal to German wages. Since average earnings in Poland are 689 euros a month, compared with 2,598 euros in Germany, that doesn’t seem likely to happen any time soon — it is pretty hard for any country to match generous German wages, let alone Poland. The door is being slammed shut.

Forget all the fuss about Grexit. In the end, whether Greece is in the euro or not makes a difference to the Greeks, but not to the rest of Europe. With 11 million people, and few major industries apart from shipping, it only accounts for 2% of the zone’s total output. One year of decent growth would add another 2% to the zone’s GDP, more than making up for its loss. If — or rather when — it finally leaves, the eurozone will survive.

That is not true of Poland, or Hungary or the Czech Republic. The euro was created specifically to challenge the might of the dollar, and to create a leading power in the global capital markets. If a few small and not very successful economies fall off the boat, it can cope with that.

When big and growing economies turn their back on it, that is another matter. It is Poland giving up on the single currency that will matter far more in the long run — and that will start this weekend.

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